Alibaba Stock Plummets On SEC Investigation Fears

Alibaba Group Holding Ltd BABA shares were down 4.3 percent in early trading on Wednesday following the disclosure of an ongoing SEC investigation into the company’s accounting practices. According to Alibaba’s new annual report, the SEC initiated an inquiry back in January 2015, and the company has been cooperating with the investigation by providing documents and information to the commission.

“We intend to continue to cooperate fully with the SEC’s inquiry and to provide the SEC with the requested information,” the report read.

“However, the inquiry has resulted and could continue to result in considerable legal expenses, the diversion of a significant amount of management’s attention from other business concerns and could harm our business.”

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Bloomberg reported the investigation is focused on consolidation practices, related party transactions and reported Singles’ Day data.

Commentary

“The SEC advised us that the initiation of a request for information should not be construed as an indication by the SEC or its staff that any violation of the federal securities laws has occurred,” the company said.

Alibaba also noted that the timetable for the investigation is unpredictable.

Alibaba has drawn criticism in the past for its stock’s “variable-interest entity” structure, which provides shareholders with little or no path for legal recourse against the company.

Disclosure: The author is long BABA.